A significant portion of the education dollar is spent on the construction, maintenance and operation of school facilities. A board is responsible for providing adequate educational facilities, keeping them in the proper state of repair and operating them in a manner that ensures the learning experience of students takes place in clean and comfortable surroundings.
Colorado law authorizes boards of education to determine the location of public schools and erect necessary buildings and
structures. Major construction projects are generally financed by the sale of bonds, but boards sometimes finance lesser projects using capital reserve funds or other funding arrangements.
In Brief: Bonded Indebtedness
Bonded indebtedness may be incurred only to:
Creating bonded indebtedness must be approved at an election, which can only be held in November each year. The process of incurring bonded indebtedness is complex and will require the assistance of competent fiscal agents and bond counsel.
- Acquire or purchase buildings or grounds
- Remodel or add to any school building
- Construct school buildings
- Equip or furnish buildings
- Improve school grounds
- Fund floating indebtedness
- Acquire, construct or improve a capital asset
- Support charter school capital construction or the charter schools’ land and facilities needs. [C.R.S. § 22-42-101.]
Funding of Capital Construction Projects
Traditionally, school districts have funded school capital construction through the issuance of general obligation bonds, paid back through property tax revenues with only limited assistance from the state. General obligation bonds may be issued only if approved by voters in the school district. Low assessed property values in some districts limit the ability of those school districts to keep up with the capital needs in the district.
The state struggled for several years to find ways to meet the capital needs of school districts unable to meet those needs with local mill levies. In 2008, the state legislature adopted legislation known as “Building Excellent Schools Today” (BEST). The BEST legislation was designed to use the growth in the Public School Fund – money and resources that reside in a state trust fund originally created as a result of federal lands dedicated to Colorado’s public schools when Colorado became a state – to create resources for school construction. The money utilized under the BEST legislation is generated from interest earnings, lease payments and mineral royalties earned on the school trust lands and other investments. It is not tax revenue. By using these funds, the state has been able to create a pot of hundreds of millions of dollars to address high-priority school capital construction needs. Under BEST, school districts are expected to bear part of the costs for these construction projects, according to the ability of local taxpayers and the school district.
Districts with the most immediate health and safety needs as a result of the poor condition of their buildings are the top priorities for supplemental assistance from the state. The state program has distributed $800 million to high-needs school districts around the state. At this time only limited funds are available through BEST, but additional funds may be available at some time in the future.
Most school districts still must rely primarily on traditional sources of funding for school construction or other creative local solutions to meet their needs.
Planning for New Buildings
The most successful school facility and community master planning is achieved by early and frequent communication between school districts and other local government leaders. Sharing information such as enrollment trends, proposed residential areas or developments and other factors affecting the number of students and future need for school capacity will help avoid conflicts. State law requires school boards to consult with the local planning commission prior to acquiring a school site. A board must advise the commission in writing of the site’s location and confirm that the proposed site will “conform to the adopted plan of the community insofar as is feasible.” State law also requires the board to consult with the Colorado Geological Survey regarding potential swelling soil, mine subsidence and other geologic hazards to determine suitability of the site for the proposed use.
After site selection and before construction of any structure or building on the site, a board must submit a site development plan to the planning commission for review. As long as the district follows the required planning commission review process, the board has the ultimate authority to determine the location of its public schools and erect the necessary buildings and structures. All buildings and structures must be constructed in conformance with the state, not local, standards of the Colorado Department of Public Safety.
Charter School Funding
Charter schools authorized by a local school board are funded from the local school district’s budget. The exact level of funding will be set in the authorizing contract between the local board and the charter school. However, funding levels for a charter school are tightly regulated by statute. In general, a charter school will receive for each student 100 percent of the school district’s per pupil funding, less amounts negotiated to be retained by the school district for administrative costs for services provided by the district to the charter school. In most cases, those administrative costs cannot exceed 5 percent of the per pupil funding received by the charter school. There are special rules for online charter schools.
If a school district collects additional operating revenues from a mill levy approved by local voters, the board may elect to permit its charter schools to share in those revenues. In addition, each time the school district decides to submit to local voters a request to approve either a mill levy for additional operating revenues or a bond issue for school district capital needs, the board must include charter schools in the district in the planning process. The board is not required to include charter schools in a revenue or bond question submitted to the voters, but if it does not include charter schools it must provide to the charter schools the reasons for its denial.
Colorado law requires that district money be deposited and disbursed through specified funds. The funds described below are specified in law. [C.R.S. § 22-45-103.]
Expenditures for day-to-day district operations are accounted for in the general fund. This includes all transactions not accounted for in another fund. Although the law provides that expenditures for certain purposes may be made out of other district funds, money may be expended out of the general fund for any purpose for which the board is authorized to expend money. In other words, money in the general fund may be budgeted and spent for any lawful purpose.
Bond Redemption Fund
The revenue for satisfying bonded indebtedness obligations, both principal and interest, is deposited in the bond redemption fund. The fund may include subsidiary accounts for each obligation of bonded indebtedness.
In this fund, the revenue from each separate tax levy is held in trust to satisfy the obligations of bonded indebtedness for which the levy is made. Revenue remaining in an account after all obligations have been satisfied shall be transferred to another account in the fund that still has outstanding obligations. If all obligations of the bond redemption fund have been satisfied, the board may transfer the balance in the fund to the general fund.
The board must select a third-party custodian to administer this fund, unless the county treasurer maintains the accounts and funds of the school district. This third-party custodian is responsible for making payments from the bond redemption fund, for administering the fund and for investing the money as provided by law and upon the direction of the school district.
Capital Reserve Fund
The board determines the amount to be maintained in its capital reserve fund. [C.R.S. § 22-45-103; 22-54-105.] Money received from gifts, donations and tuition receipts also may be deposited in this fund. The money in this fund may be accumulated from year to year and used when needed. Expenditures are limited to long-range capital outlay expenditures and may be made only for the following purposes:
- Acquiring land, making improvements, constructing structures or adding to existing structures and acquiring equipment and furnishings
- Alterations and improvements to existing structures
- Acquiring school buses or other equipment
- Any installment purchase agreement or lease agreement with an option to purchase for a period not to exceed 20 years and any lease agreement without an option to purchase
- Any software licensing agreement
- Acquiring computer equipment
The board, through adoption of an appropriate resolution, must authorize expenditures from the fund. The law requires that the resolution set forth in detail the purpose of the expenditure and the estimated total cost and location of the project. It is advised that boards look closely at the detailed provisions of the law before authorizing capital reserve fund expenditures.
Unencumbered money in this fund may be transferred to a fund or account within the general fund by action of the board.
Special Building and Technology Fund
A board can call a special election to ask the voters for authority to set a mill levy for a special building fund. The levy must not exceed 10 mills in any year or exceed three years in duration.
Expenditures from the special building fund are limited to acquiring land; acquiring or constructing structures; maintaining structures to enhance their function, protect their value and extend their economic life; and the purchase and installation of instructional and informational technology, including expenditures for software and staff training related to the new technology.
The revenues from a voter-approved transportation tax or fee imposed to pay excess transportation costs must be deposited in the transportation fund. Expenditures in the fund are limited to payment of transportation costs. Any money remaining in the fund at the end of any fiscal year must remain in the fund and be used to reduce the levy for transportation costs in future years.
Full-Day Kindergarten Fund
The revenues from a tax levy for the purpose of paying excess full-day kindergarten program costs shall be deposited in the district’s full-day kindergarten fund. Expenditures for the fund are limited to payment of excess full-day kindergarten program costs, as authorized in the district’s budget.